Deteriorating U.S. Earnings Expectations
The deterioration of earnings pre-announcements from U.S. companies highlights an increasing concern over the sustainability of the recent growth in corporate earnings. By June 30, 87 S&P 500 companies had issued negative second quarter earnings guidance, whereas only 21 companies had issued positive guidance, suggesting slower earnings growth ahead. The ratio of positive-to-negative guidance has declined to its lowest level since the start of the current bull market in March 2009.
In combination with a strong dollar and rising concerns over a slowdown in China, this suggests corporate profits could be disappointing. During the second quarter, companies with the highest exposure to China significantly underperformed. If China’s economic growth continues to slow, the sell-off in U.S. equities could significantly increase.
S&P 500 NEGATIVE AND POSITIVE EARNINGS PRE-ANNOUNCEMENTS